China growth emphasis

17 August 2004

China should put more emphasis on sustainable growth and adjust its model ofeconomic development to improve environmental quality and energy efficiency,economists said. David Wyss, Managing Director and Chief Economist of Standard & Poor’s, said that China’s economy had staged an outstanding performance when most industrial countries were suffering from a decline. And the momentum is expected to continue.

But growing together with the gross domestic product (GDP) is increasingdemand in energy and other natural resources as well as imbalances ineconomic development, which all exert a great pressure on China if it wantsto make the growth sustainable, Wyss said last week in Beijing.

China is not alone in facing such an issue, he said, but its fast growth will intensify the challenge. The world is expected to see energy demand increase by about 50 per cent inthe next 20 years. About 85 per cent of the increase will come from Asia and China is expected to take up half of that, Wyss said.

Therefore, China should adjust its model of economic development and make itmore sustainable, especially given its large population base.

The Chinese authorities, also aware of the challenge, have been urgingenterprises and local governments to focus on efficient energy-use andenvironmental protection. Niu Wenyuan, who is leading the sustainable strategic development research panel at the Chinese Academy of Sciences, said that China had paid a heavy price in natural resources for its fast economic growth over the past twodecades.

The heavy waste of resources and environmental pollution have actually reined in much of the real economic efficiency and that must be corrected, he said.

But changing the development model will take some time, experts said. In the near term however, the major challenge for the Chinese authorities is the cooling down of the economy that is already overheating in some sectors, with excessive investments recorded in industries like aluminium, cement and construction.

The government has taken a series of macro tightening measures to reduce credit supply and curb over-investment and slow down the pace of GDP growth, which reached 9.1 per cent last year and 9.7 in the first half of this year. "But I don’t think the slow-down would last very long," said Wyss with Standard & Poor’s.

The prime concern is, however, that instead of simply using administrative orders to control the economic growth and lending, China should let the market forces play a bigger role in determining the flow of loans and investments, he said. And China should further open up the financial system and give foreign institutions equal treatment as soon as possible, he said.